What Is Compliance in Business (and How Can Compliance Filings Help)?

At its core, compliance means adhering to the laws and regulations that govern your business. However, this isn’t a one-time task you complete when you launch your business or submit an annual report. Rather, business compliance requires constant attention, action, and, sometimes, help from a professional. 

We’ll explain what compliance in business really means and how LegalZoom can help you avoid penalties and complications. 

What is compliance in business?

Many small business owners think of compliance during three primary phases: the initial business setup, when facing unexpected issues or notices, and when pursuing significant growth opportunities (e.g., entering a new market). However, the full scope of compliance obligations is often far more extensive and complex.

More specifically, compliance in business refers to the legal and industry regulations that companies must follow in order to operate. This encompasses a wide range of tasks, which can be categorized as internal or external compliance. 

• Internal compliance: Procedures within the company to ensure it operates according to its own policies and all applicable laws. For instance, you must keep accurate records, adhere to employment laws, and note any membership interest transfers. Further, corporations must hold annual meetings and record minutes.
• External compliance: Maintenance obligations set by outside regulatory bodies and government agencies, such as requirements to renew business licenses, pay taxes, and file annual reports (among others that involve cooperating with a third party to stay compliant). 

However, regulatory agencies don’t always make it easy to understand the compliance requirements—and potential penalties—related to your business structure and industry, whether because of complex legal jargon, scattered information across multiple sources, or changes without clear notification.

In these situations, it’s crucial to consider what you don’t know, what you’re willing and able to learn, and whether it makes more sense to get help from a professional or an online compliance service like LegalZoom.

What happens if a business isn't compliant?

Non-compliant businesses can run into serious consequences, regardless of the entity type or size. While the specific repercussions depend on the nature and severity of the violation, they generally fall into three main categories: 

Fines and penalties

Fines are one of the most common outcomes for non-compliant businesses. Here are a few examples of potential financial penalties: 

• Late annual reports typically carry fines. For instance, Florida business owners face a $400 late fee if they don’t submit an annual report by the deadline. 
• Industry-specific violations often result in high fines, such as storing or disposing of hazardous waste without a permit ($50,000 per day).

Criminal liability

Non-compliance can sometimes lead to more severe consequences, including criminal charges against business owners. For instance, construction contractors in California who operate without a license may face up to six months in jail, not to mention fines. Even worse, any unlicensed entities who contract in a state or federal natural disaster in California could face felony charges.

Piercing the corporate veil

“Piercing the corporate veil” refers to a situation where a court disregards the limited liability protection typically provided by a corporation or LLC. In turn, the creditors or plaintiffs suing the business owners may pursue the owner’s personal assets. For example, if a small business owner purposely uses company funds for personal expenses, the court may decide to pierce the corporate veil and seize those assets to repay debts. 

Needless to say, the consequences of this outcome can be severe, as the business owner may lose savings, investments, and potentially their home.

What types of businesses need help with compliance?

The short answer is every business needs to stay compliant. Still, the complexity and need for help depend on the company, its growth stage, and its regulatory environment. Here are a few hypothetical situations that might warrant help from a professional: 

• Fast-growing LLCs. An LLC hiring its first employees will need to consider payroll taxes, workers’ compensation insurance, and employment laws, which is generally easier if you talk to an employment attorney. 
• Businesses entering regulated industries. A tech startup developing a health app will likely need to comply with data privacy and Health Insurance Portability and Accountability Act (HIPAA) regulations, often necessitating a specialized lawyer. 
• First-time tax filers. A new e-commerce business may struggle with calculating sales or franchise tax fees for the states they serve, so they might consider working with an accountant or tax professional. 

Above all, compliance isn’t a one-time event but an ongoing process, which is why many businesses seek professional help. 

How do compliance filings work with LegalZoom?

After more than 20 years of helping launch and maintain millions of businesses, we’ll be the first to tell you that staying compliant can be a complex and time-consuming task for any small business owner. That’s why we’ve designed our Compliance Filings plans with simplicity in mind—whether you need assistance with filing reports in your state or identifying which licenses and permits you need to operate.  

Here’s an overview of the core services in our Compliance Filings plans (plus a few other useful additions): 

State filings

State filings can broadly describe any paperwork or reports you’re required to file with the state(s) where your business operates. As discussed, failing to file required documents can result in penalties or loss of good standing, but our Compliance Filings service can help you do the following: 

• Identify which filings are required for your specific business type and state
• Prepare the annual report (and any other necessary documents)
• Submit the filings on time to the applicable state agency

We’ll also keep track of upcoming deadlines and alert you as needed, ensuring you’re never caught off guard by an unexpected filing. 

Annual reports 

In most states, it's a legal must for businesses to file ongoing reports. Typically, the state requires you to do this annually to ensure they have the latest information on your company, including its name, address, and managers. 

With our Compliance Filings service, you’ll get assistance with: 

• Gathering the necessary information for your annual report
• Preparing the report in compliance with state requirements
• Filing the report with the appropriate state agency 

If you fail to file these annual reports, your company could fall out of good standing. Companies not in good standing may risk penalties and fees and ultimately having their entities suspended by their state.

Amendments

As your business evolves, you may need to make official changes to your company’s information on record with the state. Our Compliance Filings plan includes two official changes each year with the Secretary of State (SOS), such as updating your ownership structure or business address. 

As an additional service, we offer other legal forms to help with contract amendments and other document changes your business might need. 

Beneficial ownership information reporting

The Financial Crimes Enforcement Network (FinCEN) deemed that certain businesses must file a Beneficial Ownership Information Report, abbreviated as BOIR or BOI reports. These reports are meant to enhance transparency and prevent financial crimes. Domestic companies are exempt, as are other entities determined by FinCEN.

Beneficial owners are non-U.S. citizens who directly or indirectly own or control at least 25% of the company's ownership interests; or exercise substantial control over the business. These beneficial owners are required to submit a BOIR.

Here’s how LegalZoom can help.

• Timely and accurate filing of your BOIR 
• Submission confirmation for your records
• Personalized support from our specialists 

Permits and licenses

For the most comprehensive support, we can help you identify and apply for the permits and licenses your business needs in order to operate. Here’s what comes with this package (in addition to everything previously discussed): 

• A personalized summary of all required federal, state, and local licenses and permits
• Access to all necessary applications
• Notifications for upcoming expirations and license report updates
• Ongoing support from our experienced compliance specialists

We also make it easy for you to reference and share business licenses directly from your account. 

Employment law

While not part of our Compliance Filings package, you can work with us to manage your employment legal needs, including the following: 

• Employment agreements. We can connect you with an attorney who can draft, customize, and revise an employment agreement for a flat rate. We also offer a free template.
• Business legal plans. If you want advice for company setup, need a contract review, or have specific compliance questions, we can partner you with an attorney for six- or 12-month increments with unlimited 30-minute consultations. 

Whether you’re hiring your first employee or managing a growing team, we’re here to help you understand employment regulations and what it takes to comply with them. 

Registered agent services

A registered agent (also known as a statutory agent in some states) is a business’ official point of contact for state and legal communications. You must have one to stay compliant, so you might consider working with us if you’re forming a new business or want to change your current agent. 

Our Registered Agent Service helps ensure you never miss critical communications or deadlines, plus it comes with unlimited cloud storage for all your business documents. Keep in mind that it’s not part of our Compliance Filings service, but is a beneficial additional service that makes it easier to meet your state’s registered agent requirements. 

FAQs

How often should a business perform a compliance audit?

Business owners should conduct compliance audits at least annually, though more frequent reviews (e.g., twice a year) may be necessary for rapidly growing companies or those in highly regulated industries. Regardless, regular self-assessments can help you identify potential issues before they turn into serious complications. 

What are the most common compliance issues businesses face?

Common compliance issues include failing to name a registered agent, update business information with state agencies, or keep accurate records (e.g., copies of operating agreements and other important documents). Many businesses also struggle with meeting the strictest internal requirements, which is why many work with professionals to understand how to stay compliant.

Is staying compliant expensive?

While compliance involves costs, it's generally less expensive than the potential fines, legal fees, and reputation damage resulting from noncompliance. You can manage many internal requirements independently (such as holding a corporation's initial and annual director/shareholder meeting), or you can use a service with flat rates like ours to keep costs predictable. 

Do LLCs have to file annual reports?

Yes, LLCs must file an annual report in most states. Generally, you’ll need to identify your state’s requirements, gather all necessary information, and submit the report to the appropriate agency, usually the Secretary of State’s office. 

Diane Faulkner contributed to this article.